Li v 110 Formosa (NZ) Limited
[2019] NZHC 70
•5 February 2019
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2016-404-001650
CIV-2016-404-001878 [2019] NZHC 70
BETWEEN JUN LI
Applicant
AND
110 FORMOSA (NZ) LIMITED
First Respondent
AND
MENG WANG
Second Respondent
Continued overleaf
Hearing: 30 January 2019 Appearances:
D M Connor and D J D van Hout for Applicant (in 1650) D W Grove for First Respondent (in 1650)
A J B Holmes and L E Mannis for Second, Fourth and Fifth Respondents (in 1878)
Judgment:
5 February 2019
JUDGMENT OF VAN BOHEMEN J
(ON APPLICATIONS FOR STAY OF JUDGMENT AND DISCHARGE OF CAVEAT)
This judgment was delivered by me on 05 February 2019 at 3.00pm Pursuant to Rule 11.5 of the High Court Rules
…………………………
Registrar/Deputy Registrar
Solicitors:
Carson Fox Bradley Ltd, Auckland (X Li) Foy & Halse, Auckland (G Halse)
Cook Morris Quinn, Auckland (D Morris) Robertson, Auckland (M Robertson)
LI v 110 FORMOSA (NZ) LIMITED [2019] NZHC 70 [5 February 2019]
AND Continued from previous page
DINGZHI HUANG
Third Respondent [Discontinued]GOLDEN BEACHLANDS HOLDINGS LIMITED
Fourth RespondentJENNY AND EAMON HOLDINGS LIMITED
Fifth RespondentLOO & KOO BARRISTERS, SOLICITORS, NOTARY PUBLIC
Sixth Respondent
Introduction
[1]On 30 January 2019, I heard applications from:
(a)the first respondent, 110 Formosa (NZ) Ltd, for orders to discharge the caveat registered by the applicant, Jun Li, against the title to the property comprising the Formosa Golf Course at Gulf Harbour (the Formosa property) following the judgment issued on 19 December 2018 by Fitzgerald J Li v 110 Formosa (NZ) Ltd in which the Judge held that Mr Li had no interest in the Formosa property;1
(b)Mr Li for a stay of the execution of Fitzgerald J’s judgment pending determination of the appeal Mr Li says he intends to file by 8 February 2019.
[2] Although Mr Li’s application to stay Fitzgerald J’s judgment was filed after and in response to 110 Formosa’s application to discharge Mr Li’s caveat, counsel agreed that the outcome of the application to lift the caveat was largely contingent on the outcome of the stay application. Accordingly, the submissions by Mr Connor for Mr Li and by Mr Grove for 110 Formosa addressed the applications together with a principal focus on the application for stay.
[3] Mr Li’s solicitors served the stay application on all parties. However, only the solicitors for Mr Li and 110 Formosa were notified there was to be a hearing of the applications on 30 January 2019. Counsel for the second, fourth and fifth respondents, Meng Wang, Golden Beachlands Holdings Ltd (GBHL) and Jenny Eamon Holdings Ltd (JEHL), were present but the sixth respondents were not represented. All counsel present agreed, however, that the hearing should proceed as scheduled.
[4] Mr Holmes for Mr Wang, GBHL and JEHL did not make submissions on the substance of the applications but said his clients supported the position advanced by 110 Formosa in opposing the stay and supporting the discharge of the caveat.
1 Li v 110 Formosa (NZ) Ltd [2018] NZHC 3418.
Relevant Background
[5] Mr Li says that in 2014 he paid $4.8 million to Mr Wang in part payment of the sum of $12.16 million, the amount which Mr Li was to pay to acquire a 32 per cent share in the purchase of the Formosa Golf Course (the property) through JEHL. The total price for the purchase of the Formosa property to be paid by JEHL was $38 million. Mr Li says the proposed deal was cancelled by the vendors because of non- performance by Mr Wang of the agreement for the sale and purchase of the Formosa property and that Mr Wang used Mr Li’s money, without Mr Li’s authority, to part fund the purchase of the Formosa property through GBHL and then 110 Formosa in which Mr Li had no interest.
[6] At the end of that process, ownership of the Formosa property vested in 110 Formosa, of which Mr Wang was the sole director at the time of purchase. Mr Li also says that solicitors Loo & Koo, the sixth defendant, who acted for 110 Formosa, Mr Wang, GBHL and JEHL, were complicit in these arrangements. Because the previously agreed arrangements had fallen over, Mr Li did not pay the remaining $7.36 million of his share of the purchase price.
[7] On 2 October 2015, Mr Li registered a caveat against the title to the property. The caveat asserted that Mr Li had a beneficial interest in the Formosa property pursuant to an equitable lien or implied, resulting or constructive trust between 110 Formosa and Mr Li. On 25 July 2016, Formosa and Mr Li filed a consent memorandum in which they recorded their agreement that, unless they agreed to the contrary, the caveat should not lapse pending the determination of Mr Li’s proceeding that he intended to bring to establish his interest in the property.
[8] On 26 July 2016, Lang J made orders that the caveat should not lapse pending further order of the Court and that the first order was conditional upon Mr Li seeking to establish the interest protected by the caveat by filing a substantive proceeding by 10 August 2016. Mr Li filed his proceeding as directed.
[9] In October 2016, 110 Formosa applied to vary Lang J’s orders to remove the caveat on the basis that the statement of claim filed by Mr Li did not disclose a caveatable interest in the property. By judgment dated 17 February 2017,
Christiansen AJ dismissed the application and held that Mr Li had established an arguable basis for his caveat and that it was further arguable that he could trace his claim of an interest in the property.2
[10] Mr Li’s substantive proceeding was heard by Fitzgerald J between 18 June and 13 July 2018. The decision was reserved.
[11] In August 2018, before the release of Fitzgerald J’s judgment, 110 Formosa made a further application to vary Lang J’s orders to discharge the caveat to allow it to obtain $3 million in secured funding to undertake urgent maintenance and remediation works and thereafter to allow Mr Li to re-register the caveat. In a judgment given on 27 September 2018, Andrew AJ dismissed the application.3 Andrew AJ proceeded on the basis Mr Li had a reasonably arguable claim to a 32 per cent interest in the land and said that if he granted the application he might complicate any relief that Fitzgerald J might award to Mr Li giving him such an interest in the land.4 Andrew AJ held 110 Formosa had failed to provide the Court with sufficient information about the financial position of the company and the value of its shares for the Associate Judge to be completely satisfied that removal of the caveat would not prejudice Mr Li’s interest.5
Fitzgerald J’s judgment
[12] Fitzgerald J issued her judgment on 19 December 2018. She dismissed all Mr Li’s claims against 110 Formosa, including Mr Li’s claim to an interest in the Formosa property by way of constructive trust in favour of Mr Li. She also dismissed all Mr Li’s claims against all the other defendants except Mr Wang. With regard to Mr Wang, Her Honour decided that Mr Wang held that proportion of his shares in 110 Formosa representing the $4.8 million paid by Mr Li pursuant to a resulting trust in favour of Mr Li. She also decided that Mr Wang was liable to Mr Li for breach of contract for utilising Mr Li’s money and then cancelling his allocated shareholding, that liability being limited to damages in the value of Mr Li’s original contribution of
2 Li v 110 Formosa (NZ) Ltd [2017] NZHC 174 at [61].
3 Li v 110 Formosa (NZ) Ltd [2018] NZHC 2529.
4 At [32]-[33].
5 At [34]-[35].
$4.8 million. Fitzgerald J directed that Mr Li file a memorandum within 20 working days from the date of her judgment confirming his election between the two remedies.
Consideration of application for a stay
[13] Mr Li’s application stated that it was made pursuant to r 17.29 of the High Court Rules 2016, under which a liable party may apply for a stay of the enforcement of a judgment to avoid against a substantial miscarriage of justice if the judgment was enforced. However, it was agreed at the hearing that the appropriate rule is r 12(3) of the Court of Appeal (Civil) Rules 2005. Under that rule, pending the determination of an appeal, the court appealed from or the Court of Appeal may, upon application, order a stay of the execution of the decision. Mr Connor said that, in any event, similar considerations apply under both rules.
[14] While it is correct that both rules involve a balancing exercise, the rules are distinct and the onus on an applicant under rule 17.29 of the High Court Rules is higher, requiring an applicant to demonstrate that a substantial miscarriage of justice would be likely to result if the judgment were enforced. I doubt Mr Li could discharge that onus. However, because there was agreement that the appropriate rule is r 12(3) of the Court of Appeal (Civil) Rules I have considered the application on that basis.
[15]In Keung v GBR Investment Ltd, the Court of Appeal said:6
[11] … In determining whether or not to grant a stay, the Court must weigh the factors “in the balance” between the successful litigant's rights to the fruits of a judgment and “the need to preserve the position in case the appeal is successful”. Factors to be taken into account in this balancing exercise include:
(a) Whether the appeal may be rendered nugatory by the lack of a stay;
(b) The bona fides of the applicant as to the prosecution of the appeal;
(c) Whether the successful party will be injuriously affected by the stay;
(d) The effect on third parties;
(e) The novelty and importance of questions involved;
6 Keung v GBR Investment Ltd [2010] NZCA 396, [2012] NZAR 17 at [11].
(f) The public interest in the proceeding; and
(g) The overall balance of convenience.
That list does not include the apparent strength of the appeal but that has been treated as an additional factor.
[16] I address each of these factors to be weighed in the balancing exercise set out in Keung v GBR Investment Ltd in determining whether a stay of execution should be granted.
Would the appeal be rendered nugatory by the lack of a stay?
[17] Whether Mr Li’s appeal would be rendered nugatory if a stay is not granted is critical to the balancing exercise. As Cotton LJ said in Polini v Gray,7 in a passage cited with approval by the Court of Appeal in New Zealand Insulators v ABB Ltd and more recently by Collins J in Accident Compensation Corporation v Stafford:8
… when there is an appeal about to be prosecuted the litigation is to be considered as not at an end, and that being so, if there is a reasonable ground of appeal, and if not making the order to stay the execution of the decree or the distribution of the fund would make the appeal nugatory, that is to say, would deprive the Appellant, if successful, of the results of the appeal, then it is the duty of the Court to interfere and suspend the right of a party who, so far as the litigation has gone, has established his rights.
[18] Mr Connor says there is a high risk that if the caveat is removed the Formosa property will be sold or encumbered and its value dissipated. Mr Connor offers the example of 110 Formosa taking out a loan secured by a mortgage on the property, defaulting on the mortgage and then the principal shareholder of 110 Formosa, Gui Rong Wen, buying the Formosa property back at a mortgagee sale. Mr Connor offers no evidence in support of this scenario other than the deep lack of trust between Mr Li on the one hand and 110 Formosa and Mr Wang on the other. However, Mr Connor says that when dismissing the application 110 Formosa brought last year to discharge the caveat Andrew AJ held 110 Formosa had not provided adequate information about its financial position. Mr Connor says that continues to be the case. For these reasons, he submits that the caveat should be sustained on the same basis as that decided by
7 Polini v Gray (1879) 12 Ch D 438 (CA) at 446.
8 New Zealand Insulators v ABB Ltd (2006) 18 PRNZ 459 at [19]; Accident Compensation Corporation v Stafford [2018] NZHC 488 at [8].
Andrew AJ, namely that the Court cannot be satisfied that removal of the caveat will not prejudice Mr Li’s interest.
[19] Mr Connor also says that the caveat is necessary to secure not only Mr Li’s claim to a 32 per cent interest in the Formosa property (if the Court of Appeal upholds Mr Li’s appeal on that point) but also the value of any monetary award that may be made against 110 Formosa and Mr Wang. That, he argues, is because Mr Li has no knowledge of the financial position of 110 Formosa or of the value of Mr Wang’s shareholding in 110 Formosa or of Mr Wang’s other assets. Mr Connor says the same considerations apply to the orders already made by Fitzgerald J and that because Mr Li does not know the value of Mr Wang’s shares Mr Li is in no position to make the election required by Fitzgerald J.
[20] Mr Grove says 110 Formosa has no interest in selling the Formosa property because Ms Wen wants to develop the Formosa property and that has always been her intention. Mr Li’s caveat is stopping that development. After the hearing, Mr Grove filed an undertaking by Ms Wen that she will not, as Director of 110 Formosa, enter into any agreement for the sale and purchase of the Formosa property without giving Mr Li’s counsel and solicitors 10 clear working days’ notice of the company’s intention to do so. Mr Grove says that the undertaking ensures that Mr Li would have adequate opportunity to apply for an injunction to stop the sale if the Court of Appeal has not issued its decision on Mr Li’s appeal.
[21] Mr Grove says that while 110 Formosa intends to raise finance against the Formosa property for urgent repairs that need to be made to the waste water system and also for development more generally, there is more than adequate value in the Formosa property for 110 Formosa to meet any order that the Court of Appeal might make. He refers to the valuation given by Mr Li’s expert at the hearing before Fitzgerald J which valued the Formosa property at $51 million and argues that any entitlement that Mr Li might be held to have in the Formosa property would not exceed 12 per cent of that sum based on Mr Li’s $4.8 million making up 12 per cent of the purchase price of $40 million. Mr Grove says that Mr Li’s claims to have insufficient information about the financial position of 110 Formosa are belied by the fact that Mr Li has made no inquiry about the financial position of 110 Formosa since an
exchange of correspondence between counsel in July 2018 prior to 110 Formosa’s second application to discharge the caveat.
[22] Mr Grove says the situation now is very different from that which was considered by Andrew AJ in September last year. Then, the Associate Judge proceeded on the assumption that Mr Li had a reasonably arguable claim to a 32 per cent interest in the land and was concerned not to complicate any relief that Fitzgerald J might award to Mr Li. Now, after full consideration of Mr Li’s claim, Fitzgerald J has found there is no basis for the claim.
[23] Mr Grove also says that Mr Wang holds 19.75 per cent of the shares in 110 Formosa and that those shares remain frozen in accordance with an undertaking made by Mr Wang to the Court in June 2018 and noted by Fitzgerald J in her judgment.9 However, Mr Grove also says that the caveat can be sustained only on the basis that Mr Li has a caveatable interest in the Formosa property and not on the basis that it is necessary to secure any monetary awards that the Court might make in Mr Li’s favour against 110 Formosa or Mr Wang.
[24] There are significant differences between the facts in the present case and those in Polini v Gray, NZ Insulators and Stafford. In Polini v Gray, the plaintiffs wished to appeal a decision refusing their claim to share in funds in a deceased’s estate. The plaintiffs were concerned that unless the decision under appeal was stayed the defendant would distribute the funds to others and the funds would be unavailable if the appeal was upheld. The Court held that a stay was necessary to preserve the funds until the appeal had been decided.
[25] In NZ Insulators, the Court accepted that the appellants would suffer significant financial losses as a consequence of the injunction ordered by the High Court requiring the appellants to stop manufacturing their product. There too, the loss that would be suffered by the appellant flowed directly from the execution of the judgment under appeal.
9 At [270].
[26] In Stafford, the Accident Compensation Corporation had entered into agreements with third parties for the sale and purchase of land surplus to its requirements. Mr Stafford registered a caveat against the land on behalf of Māori whose interests were represented by the Wakatū Incorporation which was engaged in Treaty settlement negotiations with the Crown. Mr Stafford’s purpose in registering the caveat was to try to ensure the land was available for transfer to the Wakatū Incorporation in the settlement process. In his judgment of 22 February 2018, Collins J held that Mr Stafford had no caveatable interest in the land.10 It was that decision that Collins J stayed pending the determination of Mr Stafford’s appeal. As in Polini v Gray and in NZ Insulators, in Stafford, Mr Stafford would likely have lost any value in the appeal if Collins J’s first judgment had not been stayed. The land was already under contract and would have been sold, unless the purchaser exercised an option to cancel. And it was the land itself rather than the value in the land that Mr Stafford sought to protect.
[27] In this case, execution of Fitzgerald J’s judgment would have no automatic consequences for Mr Li. The Formosa property is not up for sale and 110 Formosa says it will not be taking any steps to sell the Formosa property. The director of 110 Formosa has also given the undertaking referred to above. While Mr Connor argues that, regardless of Ms Wen’s undertaking, 110 Formosa has the ability and the inclination to destroy or diminish Mr Li’s asserted claim in the land by other means regardless of Ms Wen’s undertaking, I do not consider the Court can act on the basis of such speculation. I accept that Mr Li has cause to be distrustful of Mr Wang because of his appropriation of Mr Li’s money and because Fitzgerald J found that Mr Wang was not truthful in the evidence he gave either before her or in the earlier caveat- related proceedings.11 However, I must base my decision on a firmer footing, particularly now that Mr Li has had a full hearing of his claim. In that regard, reference to the pleadings is helpful.
[28] In his third amended statement of claim dated 5 July 2018 Mr Li seeks orders that 110 Formosa be required to buy out his claimed 32 per cent interest for the sum of $8.96 million if the Court upholds his claims against 110 Formosa based on
10 Accident Corporation v Stafford [2018] NZHC 218, [2018] 2 NZLR 861.
11 Li v 110 Formosa (NZ) Ltd [2018] NZHC 3418 at [180].
constructive trust, breach of fiduciary duty and knowing assistance, resulting trust, and money had and received under Mr Li’s first, second, third, and seventh causes of action.12 In other words, Mr Li seeks satisfaction by way of financial compensation rather than through endorsement of a continuing interest in the property.
[29] Mr Li claims relief based on an asserted interest in the Formosa property itself only under the first cause of action in which Mr Li says 110 Formosa holds the Formosa property on constructive trust for Mr Li. While the relief sought in the other causes of action includes compensation for the claimed value of the asserted 32 per cent interest in the Formosa property, the causes of action themselves are not based on a claim to a current interest in the Formosa property. In the second cause of action for breach of fiduciary duty the amended statement of claim says, in terms, that Mr Li has been deprived of a 32 per cent interest in the Formosa property. In the third cause of action, the asserted resulting trust is in respect of Mr Li’s contribution of $4.8 million and not in relation to the Formosa property. In the seventh cause of action, for money had and received, Mr Li seeks judgment for $4.8 million plus interest and costs.
[30] In summary, the claimed interest in the Formosa property secured by the caveat relates only to the first cause of action. It follows that removal of the caveat will not render the whole of Mr Li’s appeal nugatory because the relief sought under the other causes of action on which Mr Li also seeks to appeal Fitzgerald J’s decision is not contingent on Mr Li having a continuing interest in the Formosa property itself. Moreover, with respect to the first cause of action, Mr Li seeks financial compensation rather than endorsement of a continuing interest in the Formosa property. It follows that with respect to that cause of action, Mr Li’s relief, if he succeeds on appeal, is not contingent on securing an interest in the Formosa property. Furthermore, as Mr Grove says, the caveat can secure only a caveatable interest and cannot be used as a general security for judgment. That is so even where there is the level of distrust between the parties asserted by Mr Connor.
12 Fitzgerald J records that Mr Li’s claims against 110 Formosa under Mr Li’s fifth and sixth causes of action were not seriously pursued in argument and, in any event could not have succeeded; Li v 110 Formosa (NZ) Ltd [2018] NZHC 3418 at [26]-[30].
[31] In all the circumstances, therefore, I find that the discharge of the caveat will not render Mr Li’s appeal nugatory. It follows that I find that this factor weighs against staying the execution of Fitzgerald J’s judgment.
The bona fides of Mr Li as to the prosecution of the appeal
[32] Mr Grove invites me to infer that Mr Li’s bona fides are questionable because Mr Li delayed applying for a stay of the judgment, has not made the election directed by Fitzgerald J and has yet to file his appeal or to provide the Court with a draft notice of appeal.
[33] I see no basis for drawing that inference. Fitzgerald J’s judgment was released just before the Christmas break during which time does not run under the definition of “working day” in r 1.3 of the High Court Rules. Mr Li is entitled to conduct himself in accordance with those Rules. Mr Connor has also said Mr Li is content for an order for a stay to be contingent upon Mr Li filing his appeal by 8 February 2019.
[34] Mr Grove refers me to correspondence exhibited to an affidavit sworn on 27 August 2018 by Mr Graham Chin, the General Manager of operations of 110 Formosa, in the context of 110 Formosa’s attempt to have the caveat discharged last year. Mr Grove says the correspondence demonstrates that Mr Li is maintaining the caveat to pursue ulterior advantages. I accept that the correspondence, including related correspondence from 110 Formosa, shows that there has been deep mistrust between Mr Li and 110 Formosa and that each side has engaged robustly with the other. But I do not accept that the correspondence demonstrates Mr Li’s lack of bona fides. Nor do I accept that the correspondence demonstrates lack of bona fides on the part of 110 Formosa as Mr Connor also invited me to infer.
[35] Accordingly, I find the bona fides of both parties to be a neutral factor, neither weighing in favour of or against a stay of execution of Fitzgerald J’s judgment.
Would 110 Formosa be injuriously affected by a stay?
[36] In an affidavit sworn on 27 August 2018, Mr Chin said urgent work was then required, at a cost of $3 million, to repair the waste water treatment system but was
prevented by an inability to raise finance because of Mr Li’s caveat. As a consequence, 110 Formosa was required to bring three sewage removal trucks to the Formosa property each day at a cost of $7,000. In an affidavit sworn on 30 January 2019, Mr Chin said the damage arising from Mr Li’s caveat continues although the demand on the waste water system has reduced because the height of the summer season has passed. Mr Chin produced a bank record which he said shows that Ms Wen has contributed in excess of $1.8 million to fund the operations of the Golf Course and to fund 110 Formosa’s defence to Mr Li’s proceeding.
[37] Mr Li does not challenge that evidence and Mr Li has given an undertaking to agree to the Formosa property being used as security for a loan of $3 million to be applied to maintenance and capital expenditure in connection with the Formosa property on the understanding that the caveat would remain in place pending the outcome of his appeal.
[38] Notwithstanding Mr Li’s undertaking, I accept that 110 Formosa will be injuriously affected by a stay if the consequence is that the caveat remains in place. Whether or not the undertaking offered by Mr Li would be adequate to enable 110 Formosa to raise funds to undertake the remedial works to the waste water treatment plant, the caveat would continue to prevent 110 Formosa from undertaking its proposed development of the property. Accordingly, this factor weighs against a stay of execution.
The effect on third parties
[39] Mr Groves argues that a stay would have a significant effect on Ms Wen, 110 Formosa’s principal shareholder, who is unable to obtain finance to progress the development of the Formosa property which was the purpose of its purchase. Mr Groves says Ms Wen is propping up 110 Formosa with her own money because of the company’s inability to raise its own finance. He also says that when Ms Wen bought into 110 Formosa she had no knowledge that Mr Wang had appropriated Mr Li’s money to fund the purchase of the property.
[40] Mr Li does not deny that the maintenance of the caveat has consequences for Ms Wen or that Ms Wen was unaware of how the initial purchase of the Formosa
property had been financed but Mr Connor suggests that the latter is the consequence of inadequate due diligence on Ms Wen’s part. Mr Connor also says that, in any event, 110 Formosa is fixed with knowledge of the financing arrangements because Mr Wang was sole director at the time.
[41] Regardless of whether or not Ms Wen undertook adequate due diligence, I accept that a stay of Fitzgerald J’s judgment, coupled with maintenance of the caveat, would have significant adverse consequences for Ms Wen. Accordingly, this factor also weighs against a stay of execution.
The novelty and importance of questions involved
[42] Mr Groves says there are no questions of novelty or importance at issue. Mr Connor does not contest that and I consider this factor to be neutral.
The public interest in the proceeding
[43] Mr Groves says there is no public interest in the proceeding. Mr Connor does not contest that and this factor is also neutral.
The balance of convenience
[44] Mr Groves says the balance of convenience lies in maintaining the status quo in light of the judgment of Fitzgerald J, which is for the caveat to be removed and for the development of the Formosa property to proceed as all parties had intended. Mr Connor says that the balance of convenience lies strongly in preserving Mr Li’s position while the appeal proceeds which means leaving the caveat in place.
[45] This factor is finely balanced. On the one hand, I accept that the maintenance of the caveat is having a significant adverse effect on 110 Formosa and Ms Wen who are unable to proceed with the intended development. To continue that situation while Mr Li pursues a right of appeal on a point on which Fitzgerald J’s finding was unequivocal – that Mr Li had no ownership interest in the Formosa property itself – is a serious imposition. That imposition is acute if 110 Formosa is unable to undertake the necessary remedial works to the waste water treatment system.
[46] On the other hand, Mr Li’s money was used to contribute to the purchase of a property by a vehicle in which he had no interest. He has been deprived of the use of his money and deprived of his opportunity to acquire, at least indirectly through a corporate structure, a 32 per cent interest in the property.13 Mr Li insists he has an interest in the property itself which he wishes to pursue on appeal and maintains there is a serious risk he will be unable to recover the full extent of his losses if the caveat is lifted because of arrangements 110 Formosa may put in place and in circumstances where 110 Formosa has not been forthcoming in disclosing its true financial position.
[47] I accept there are serious concerns on both sides and those concerns are exacerbated by the deep distrust between Mr Li and 110 Formosa and its shareholders, especially Mr Wang. As far as Mr Li is concerned, however, this is not a situation where Mr Li has nothing and risks losing everything if the caveat is lifted. Fitzgerald J has found in Mr Li’s favour on two counts in his claims against Mr Wang. Nor is it a situation where, if the Court does not intervene by staying Fitzgerald J’s judgment, it will be sanctioning Mr Wang’s wrong-doing as Mr Connor argues. Subject to the election Mr Li must make, he has secured an interest in Mr Wang’s shares in proportion to the Mr Li’s contribution of $4.8 million or a right to damages in the sum of $4.8 million. If Mr Li puts those remedies in issue by appealing the whole of Fitzgerald J’s judgment, as Mr Connor says he intends to do, that is a choice made by Mr Li and the consequences for that choice cannot be held against 110 Formosa.14
[48] While I have acknowledged that Mr Li has reasons to be distrustful, I consider his lack of engagement with 110 Formosa and with Mr Wang after the release of the judgment to be unhelpful. It also indicates that the appeal may be being pursued as much for leverage as for endorsement of Mr Li’s asserted ownership interest in the property. I find unconvincing Mr Connor’s assertion that Mr Li has a right to expect 110 Formosa to make good on the deficiencies in information identified by Andrew AJ in September last year without Mr Li taking any steps following Fitzgerald J’s
13 I note that while Mr Connor said that Mr Li was ready, willing and able to contribute the outstanding balance of his share of the purchase price, Mr Groves and Mr Holmes said there was no evidence of that before Fitzgerald J.
14 If Mr Li had decided to appeal only those aspects of Fitzgerald J’s decision that relate to his claim to an ownership interest in the property, I would have held that the balance of convenience lay with not staying the judgment and with discharging the caveat since Mr Li would have already significantly secured his position, even if not to the extent he wishes.
judgment, particularly with respect to obtaining information that Mr Li says is necessary for him to make the election required by Fitzgerald J. Saying that there is no point in asking because Mr Li could not believe anything he was told by 110 Formosa is not a credible or useful basis for seeking the intervention of the Court.
[49] For these reasons, I consider the balance of convenience weighs against a stay of execution of Fitzgerald J’s judgment and in favour of discharging the caveat.
[50] Overall, therefore, when weighing all of the factors identified by the Court of Appeal in Keung v GBR Investment Ltd, the balance is in favour of dismissing the application for a stay of execution of Fitzgerald J’s judgment.
The apparent strength of the appeal
[51] As noted above, in Keung v GBR Investment Ltd the Court of Appeal said that the apparent strength of the appeal has been treated as an additional factor to the list of factors to be weighed in the balance.15 However, in New Zealand Insulators16 the Court cited with approval a statement by Buckley LJ in Minnesota Mining & Manufacturing Co v Johnson & Johnson when he said:17
… when there appears to be a genuinely arguable case, the odds in favour of one party or the other should not, in my opinion, weigh much, if at all, in the scales. The Court should not at this stage embark upon a premature determination of the appeal.
[52] Acknowledging that caution, I am hesitant to undertake an assessment of the merits of the appeal. However, Mr Connor emphasises this factor and I need to ensure that any factor that may be favourable to Mr Li is not excluded from consideration.
[53] Mr Connor says Fitzgerald J was seriously in error in holding that the expectation of Mr Li in relation to the acquisition of the Formosa property was not in obtaining an ownership interest in the property itself but in obtaining an interest or shareholding in the corporate vehicle that was to purchase the Formosa property. Mr Connor says Fitzgerald J failed to give any weight to the introductory provisions
15 Keung v GBR Investment Ltd [2010] NZCA 396, [2012] NZAR 17 at [11].
16 New Zealand Insulators v ABB Ltd (2006) 18 PRNZ 459 at [21];
17 Minnesota Mining & Manufacturing Co v Johnson & Johnson [1976] RPC 671 (CA) at 678.
of the Cooperation Agreement signed on 29 August 2014 in which Mr Li, Mr Wang and another party set out the basis on which they would acquire the Formosa property. Mr Connor submits that those provisions of the Cooperation Agreement, particularly the preamble and clause 1, show that it was the intention of the parties to acquire the land itself. Against that background, the company referred to in the following clauses of the Cooperation Agreement should be regarded as the agent for the parties.
[54] On that basis, Mr Connor says it would have been open to the Judge to have held that the intention was that the company would hold the land for and on account of the parties to the Cooperation Agreement and to have looked through the company in circumstances where Mr Wang and 110 Formosa had used the company structure to deprive Mr Li of his expectation of a share in the Formosa property. When asked for an authority to support that interpretation, Mr Connor referred to the judgment of Lord Sumption JSC in Prest v Petrodel Resources Ltd.18
[55] Mr Groves and Mr Holmes say that this argument advanced by Mr Connor, who did not represent Mr Li in the substantive proceeding, was not argued at the hearing before Fitzgerald J and the Judge makes no reference to that argument in her description of Mr Li’s causes of action or in her consideration of those causes of action.
[56] It is open to Mr Li to advance that argument on appeal when the Court of Appeal might hear more considered argument than was possible before me. For that reason, I do not offer a firm view on the merits of the argument. It seems doubtful to me, however, that either Mr Wang or 110 Formosa can be said to have used a corporate structure to evade an obligation they owed to Mr Li in the sense contemplated by Lord Sumption when he posited the limited principle under which a court may pierce the corporate veil in order to deprive a company or its controller of the advantage they would otherwise have obtained by the company’s separate legal personality.19
[57] As recorded at [13] and [189] – [190] of Fitzgerald J’s judgment, the argument before the Court was on the basis of the principles in Lankow v Rose and the observations of the Court of Appeal in Fortext Group (in rec and in liq) v McIntosh
18 Prest v Petrodel Resources Ltd [2013] UKSC 34, [2013] 2 AC 415.
19 At [35].
where it was recognised that a constructive trust in property may arise where certain conditions apply, including an expectation, that is reasonable in all the circumstances, of an interest in the property.20 That was the context in which Fitzgerald J held that Mr Li had no expectation of an interest in the Formosa property because his interest was in securing shares in the corporate vehicle that was to acquire the property.
[58] Mr Groves submits that Fitzgerald J’s findings on this argument are conclusive and reflect reality; that is, as is common in real estate developments, the intention of the parties was to form a special purpose vehicle to acquire and manage the property. That intention is reflected in the Cooperation Agreement which records the rights and interests of the parties in the corporate structure described in the agreement, notwithstanding the language used in the opening provisions. Mr Grove says those opening provisions set out the broad intention of the parties but that they are subject to the implementation arrangements in the balance of the agreement.
[59] I agree that the preamble and clause 1 of the Cooperation Agreement are largely aspirational and that the substance of the agreement is in the later provisions dealing with the corporate structure. In that respect, therefore, there appears to be a strong foundation for Fitzgerald J’s finding that Mr Li’s interest was in securing shares in the corporate vehicle that was to acquire the Formosa property rather than in securing an interest in the Formosa property itself. I consider that Mr Li may have difficulty persuading the Court of Appeal to reach a different conclusion.
[60] Mr Connor also referred to the observations by Christiansen AJ when he dismissed 110 Formosa’s first application to vary the orders made by Lang J and discharge the caveat. In his decision, the Associate Judge held that on conventional trust and tracing principles the facts before him established a reasonably arguable case for a trust in Mr Li’s favour over the Formosa property and therefore to a caveatable interest in the land. Christiansen AJ also said that prima facie, Mr Li is entitled in equity to trace his contribution into the property now owned by 110 Formosa.21
20 Lankow v Rose [1995] 1 NZLR 277 (CA) at 294; Fortext Group (in rec and in liq) v McIntosh
[1998] 3 NZLR 171 at 174-178.
21 Li v 110 Formosa (NZ) Ltd [2017] NZHC 174 at [48]-[50].
[61] However, since those observations were made there has been a substantive hearing before Fitzgerald J during which all the arguments that Mr Li’s counsel chose to advance were given full consideration. It is not apparent from Fitzgerald J’s decision that any argument was advanced based on the proposition that Mr Li’s contribution of $4.8 million could be “traced” into 110 Formosa’s property. Such discussion of tracing as there is in the judgment concerns the tracing of money into various bank accounts.22 It is difficult to assess, therefore, the prospects of Mr Li succeeding at appeal on an argument based on tracing principles, at least with respect to Mr Li’s asserted caveatable interest in the property.
[62] Mr Connor argues that Fitzgerald J erred in not finding that 110 Formosa were fixed with knowledge of Mr Wang’s appropriation of Mr Li’s money given that Mr Wang was the company’s sole director at the time it purchased the property. It is not apparent, however, how such knowledge is relevant under the first cause of action which is the only cause of action in which Mr Li alleges a continuing interest in the land. That cause of action, regarding a constructive trust, turned on Mr Li’s expectations, not on the knowledge of 110 Formosa.
[63] Accordingly, I am not persuaded that the merits of Mr Li’s case, particularly with respect to the first cause of action, are of such obvious strength as to affect the balance when assessing the competing rights of 110 Formosa and Mr Li.
Result
[64] For the above reasons, I conclude that in balancing the competing rights of 110 Formosa, as the successful party before Fitzgerald J, and Mr Li, as the intended appellant, the balance lies in favour of dismissing the application for a stay of the execution of Fitzgerald J’s judgment. In particular, I am not persuaded that a stay of execution would render Mr Li’s appeal nugatory.
[65] Both parties accept that Mr Li has no caveatable interest in the Formosa property if execution of the judgment of Fitzgerald J is not stayed. It follows that I should grant the application by 110 Formosa to vary or revoke the orders made by
22 At [159] and Schedule A,
Lang J on 26 July 2016. In the circumstances, I consider revocation of the orders and discharge of the caveat to be the appropriate course. However, the revocation and discharge will take effect 20 working days from the date of this judgment to give Mr Li the opportunity to appeal this decision to the Court of Appeal if he so wishes.
[66] In reaching this decision, I have taken into account the undertaking by Ms Wen not to enter into any agreement for the sale and purchase of the Formosa property without first giving Mr Li’s counsel and solicitors 10 clear working days’ notice of the company’s intention to do so. The Court expects that undertaking and the undertaking by Mr Wang not to deal with his shares in 110 Formosa pending further order of the Court to be honoured. I grant leave to Mr Li to apply in the event they are not.
Costs
[67] As 110 Formosa has been successful on both applications, it is entitled to costs on a 2B basis as fixed by the Registrar.
Orders
[68]With effect from 7 March 2019:
(a)The orders made by Lang J on 26 July 2016 concerning Caveat 10209375.1 registered against Certificate of Title 748626 are revoked;
(b)Caveat 10209375.1 is discharged.
G J van Bohemen J
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